Self-employed people are facing financial hardship, stress and even bailiffs at the door as local councils use an “unfair” Universal Credit rule for entirely separate tax relief decisions, campaigners have warned.
Struggling traders seeking support with council tax payments are quietly being hit by a clause initially designed as part of Universal Credit - even in areas where the benefit reform is yet to roll out.
The controversial rule, dubbed a “minimum income floor”, could see some traders lose hundreds of pounds a year in council tax relief.
Lewes, Wealden and Eastbourne councils in East Sussex have all used the income floor since 2016. These councils now say the policy is “under review”.
They are among a growing number of authorities across the UK, including Isle of Wight, Torbay, Exeter, Thanet and Sutton councils, who say they use the rule to ration council tax relief.
Sunderland City Council will introduce the rule later this year.
The minimum income floor calculates a figure based on the national minimum wage and an expected number of working hours, but critics say these often do not reflect the reality of running a business.
The income floor means a person earning, say, £200 a week through self-employment could find themselves ineligible for a council tax reduction.
Yet someone earning the same amount through normal employment would receive a lower council tax rate - an up to 80 percent discount in some areas.
“Those who have genuinely tried to be entrepreneurial are being penalised harshly,” Ruth O’Keeffe, a councillor who represents Lewes, told HuffPost UK.
“It’s awful. Some people affected have gone into arrears before they knew what had even happened.
“It’s awful. Some people affected have gone into arrears”
- Cllr Ruth O'Keeffe
“Others have been forced to go to the Rotary Club for help with school uniforms, some have been forced to foodbanks.”
The minimum income floor has already been criticised for its impact as part of Universal Credit.
Mike Cherry of the Federation of Small Businesses, which represents traders, told HuffPost: “The minimum income floor discourages entrepreneurialism, pure and simple.”
The income floor has been described as “inherently unfair” as, through its design, it leaves some sole traders worse off than employees earning the same amount.
MPs said last year the rule “risks stifling viable new businesses” while an influential think tank estimated 800,000 strivers would be affected in time.
Traders previously told HuffPost how Department for Work and Pensions (DWP) officials had advised them they were “better off jobless” as a result of the income floor.
Double whammy
The fact the same rules are now being used to govern council tax relief could be seen as a double whammy for the self-employed.
“If the minimum income floor is now being used to determine levels of reliefs and support outside of the Universal Credit regime, that’s a real concern,” Cherry added.
Low-income traders in Lewes, for example, will be eligible for Universal Credit when it rolls out there in September.
Victoria, a local self-employed person, said she knew of two people who had given up their businesses and signed onto the dole as a result of the income floor being applied to council tax.
“They couldn’t make the figures add up,” she told HuffPost. “This was the final straw for them.”
Lewes introduced the minimum income floor for council tax reduction claims in 2016 after a consultation and vote at a council meeting.
In a November 2015 motion, officers cited a change in policy by the Coalition Government as a reason for introducing new rules.
The motion states central government had cut the budget for council tax relief by 10 percent, forcing them to seek new ways to calculate reductions.
Victoria, who chose not to provide her full name, claimed it was only her persistence in raising the issue that encouraged Lewes District Council to state the minimum income floor policy clearly on its website.
“Before a couple of weeks ago this information was nowhere to be seen,” she said. “It wasn’t on their website, it’s not on my council tax notice, it’s not on my award [for a council tax reduction].”
Exceptions exist for single parents, like Victoria, but not for other types of claimants.
“When you are budgeting down to the last pence, this sort of saving is really important,” Emily Clarke, a local poverty campaigner, told HuffPost.
“When you are juggling your family and budget and you thought you had this council tax relief, to not get it is shattering.
“Lewes might seem affluent but there’s a lot of hidden poverty here.
“The council is now saying to people their businesses are not viable, but where is their support?”
Jackie Wilkes of Lewes Citizens Advice Bureau said she had seen at least six clients affected by the rule in the past year.
It is now one of the service’s priority campaigns with those affected “incurring costs and enforcement action as a result, suffering further financial hardship and undue stress.”
The current cost of council tax in Lewes for a Band A property is £1,228 a year.
Lewes District Council said in a statement to HuffPost that it “has committed to review the local council tax support scheme to ensure it provides the best possible fit for residents.
“The review will be conducted with other East Sussex authorities and will take place over the coming months.”
The DWP referred HuffPost to the the Ministry of Housing, Communities and Local Government (MHCLG).
MHCLG said the issue was for local councils to comment on.